Berlin bailout could be the best worst-case scenario for Ireland

By Brendan Keenan @ the Independent, Thursday March 05 2009

In the euro area, the idea of ‘federal’ bonds issued by a central euro authority, from which countries would take their individual borrowing requirements, has also been ruled out.

All the plans are still hypothetical and all calls for hard cash — even from the commission — have fallen on deaf ears in the major capitals. So it is far from clear that any ‘rescue’ will actually take place.

But if it did, the political architecture in which Ireland would find itself would be transformed. Former Taoiseach Garret FitzGerald has already said the country risks losing its independence, which seems a fair description of any likely rescue package.

It might partly depend on what it was we were being rescued from. The general assumption is that it would be the fiscal crisis. Even that can take two forms, however. The Irish Government might be to blame, because it was unable or unwilling to impose enough tax rises and spending cuts to reduce the budget deficit, even to dangerous levels, from the present impossible ones.

In that case, any rescuer, be it Berlin or the IMF, would impose the same cutbacks, and a bit more, in return for providing the cash just to pay the public-sector wages and bills.

That is why it is so pointless to resist the necessary measures. They will come anyway. But all history shows that does not stop people resisting them.

Berlin, though, can be expected to impose more conditions than Washington in such circumstances.

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1st published February 2nd

…..So here it is – to obtain the additional revenue our economy needs to make up for its lack of purchasing power, and upon which the economy is completely reliant, the government sells IOUs which increase in value with time. And when the time comes for them to be cashed, the government sells even more IOUs and uses this money to pay off the old ones. The government operates in an absurd system of debt-stocks which constitute a meaningless and utterly un-repayable debt to the future. This provides the government with a small amount of money now on the condition that they repay a much larger sum in ten or twenty year’s time. The government then proceeds to flood the market with these meaningless promises to pay, which can only be redeemed by the issue of yet more promises. The government draws on money already created as a debt, and relied upon for future payments on insurance claims and the pensions of the elderly, and allows banks and other lending institutions to purchase their bonds, conceding to these private institutions the right and power to create additional money, which is then loaned to the government at interest. Meanwhile, we must all work harder and harder, and the economy must become ever more productive and efficient to try to compete with other nations operating under the same lunatic structures, whilst the national debt inflates like a balloon…. Link to full article

Last Updated: 8:04PM GMT 23 Feb 2009

….Mr Trichet said the ECB has increased its balance sheet by €600bn (£525bn)
since the Lehman collapse in September. The bank is providing “unlimited
liquidity” in exchange for a wide range of collateral, including
mortgage bonds issued for the sole purpose of extracting ECB funds.

But the ECB’s leading voices have adamantly refused to contemplate going to
the next stage: buying bonds and other assets with “printed money”.
They see that as the Primrose path to hell. This week the tone has abruptly
changed, suggesting that a majority of the 16 national bank governors on the
ECB council are having second thoughts.

The apparent ring-leader is Cypriot member Anastasios Orphanides, a former Fed
official and a world authority on deflation traps. He said on Monday that
the ECB may have to go beyond “zero-bound” rates and revealed that
an “internal discussion” was under way.

Italy’s Mario Draghi is in the “activist-easing” camp. “The
experience in the US in the 1930s and Japan in the 1990s suggests that it is
necessary to fight, in the early phases of the crisis, the tendency for real
interest rates to rise,” he said.

Finland’s Erkki Liikanen is of the same opinion. “We are facing the worst
financial crisis in our time. It is important not to exclude, ex ante,
any measures.”

Julian Callow from Barclays Capital said 10 ECB governors are now doves.

This amounts to a mutiny against the Bundesbank-dominated executive in
Frankurt. It is no great surprise. They have to answer to their democracies.
The plot is thickening….Link to article